Chapter 7/Consumers, Producers, and the Efficiency of Markets 39 Chapter 7 Consumers, Producers, and the Efficiency of Markets Which of the following best explains the source of consumer surplus for good A? a Many consumers would be willing to pay more than the market price for good A b Many consumers pay prices that are greater than the equilibrium price of good A c Many consumers think the market price of good A is greater than its cost d Many consumers think the price elasticity of demand for good A is unit elastic If you had been willing to pay $2.19 for the gallon of milk purchased at the supermarket but were required to pay only $1.89, you have gained a a refund of $.30 from the clerk b a consumer surplus amounting to $.30 c excess marginal benefit of $2.19 d producer surplus of $.30 The demand curve shows the a highest price buyers actually pay for each unit of a good and the amount they would buy b highest price buyers would be willing and able to pay for each unit of the good or the amount purchased at each price c consumer surplus buyers gain from each unit of the good if they were to purchase it d enjoyment consumers get from each unit of the good if they were to purchase it If demand increases when supply is perfectly elastic, then a consumer surplus will remain the same b consumer surplus will increase c it is not possible to predict the change in consumer surplus d consumer surplus will decrease with the increase in price Consumer surplus tends to be small when a demand is elastic b supply is elastic 40 Chapter 7/Consumers, Producers, and the Efficiency of Markets c demand is inelastic d supply is inelastic This diagram shows the demand for trips across a bridge that spans the Hudson River. If the price of crossing the bridge is zero, consumer surplus is a $25 b $50 c $625 d $1250 This diagram shows the demand for trips across a bridge that spans the Hudson River. If the price of crossing the bridge is $6.00, consumer surplus is a $22 b $46 c $484 d $968 Which of the following statements is correct? a The price of a good reflects its value to the consumer b Consumer surplus can be high for a lowpriced good and low for a highpriced good c The price of water is low relative to that of diamonds because the government provides water at affordable rates for households as a public service d The waterdiamond paradox shows the limitations of economic theory The area underneath a demand curve down to the equilibrium price is a always less than the area under the supply curve b always greater than the area under the supply curve c consumer surplus d producer surplus 10 The benefit to a producer of selling a good at the equilibrium price is called a producer surplus Chapter 7/Consumers, Producers, and the Efficiency of Markets 41 b consumer surplus c welfare economies d efficiency gain 11 Sellers’ costs of producing various units of the good are shown by the a height of the demand curve b width of the demand curve c width of the supply curve d height of the supply curve 12 Producer surplus tends to be large when a supply is elastic b demand is elastic c supply is inelastic d demand is inelastic 13 This diagram shows the market for swordfish, in equilibrium at $20 per pound. At this price consumer surplus is a $5.00 b $12.50 c $50.00 d $62.50 s 14 This diagram shows the market for swordfish, in equilibrium at $20 per pound. At this price producer surplus is a $5.00 b $12.50 c $50.00 d $62.50 15 This diagram shows the market for swordfish in equilibrium at $20 per pound. If the government imposes a price ceiling of $10.00 in order to protect buyers in this market, 42 Chapter 7/Consumers, Producers, and the Efficiency of Markets a b c d total surplus and efficiency in the market will increase total surplus will decrease but efficiency will increase total surplus will decrease and efficiency will decrease consumer surplus will increase but producer surplus will decrease by the same amount 16 An economically efficient situation is one in which a everyone has everything they need b everyone has aboveaverage income c total surplus is maximized d all producers are operating at the lowest possible marginal cost 17 An equilibrium when there is perfect competition a is undesirable b is economically efficient c leads to high consumer surplus at the expense of producer surplus d can be economically efficient only if the government steps in with price floors to protect sellers 18 One way of measuring the economic inefficiency in a specific situation is to calculate the a difference between the price of the good in the inefficient situation and the price if the situation was efficient b change in revenue reported by firms c loss in consumer and producer surplus relative to an efficient solution d change in economic profits relative to an efficient solution 19 A perunit tax on a good will a result in a decrease in total surplus b generally hurt only consumer surplus c generally hurt only producer surplus d result in an increase in total surplus 20 If the supply curve is perfectly elastic, a per unit tax a doesn’t reduce total surplus Chapter 7/Consumers, Producers, and the Efficiency of Markets 43 b doesn’t reduce consumer surplus c doesn’t reduce producer surplus d reduces consumer surplus but increases producer surplus by the same amount 21 Equity involves a whether or not the outcome of an economic system is as large as possible b whether or not the outcome of an economic system is divided fairly among participants c the way that government becomes involved in fighting for an efficient allocation of resources d maximization of total surplus 22 Frequently, when firms have market power a the product in an industry is no longer standardized b there are only two sellers of a good or service c price is lower than it would be with perfect competition d external benefits are created by the firms with market power that increase total surplus 23 Which of the following firms has the most power in its market? a the U.S. Post Office b Ford Motor Company c FedEx d Ben & Jerry’s Ice Cream 24 Which of the following is an example of a positive externality? a air pollution b a person who litters in a public park c a consumer whose dream comes true when she buys a new convertible d a nice garden in front of your neighbor’s house 25 Market failure in the form of externalities arises when a all production costs are included in the prices of goods b not all costs and benefits are included in the prices of goods c the total surplus is maximized but some consumers cannot buy because prices are too high d the market fails to achieve equilibrium ...40 Chapter 7/Consumers, Producers, and the Efficiency of Markets c demand is inelastic d supply is inelastic... The benefit to a producer of selling a good at the equilibrium price is called a producer surplus Chapter 7/Consumers, Producers, and the Efficiency of Markets 41 b consumer surplus c welfare economies... This diagram shows the market for swordfish in equilibrium at $20 per pound. If the government imposes a price ceiling of $10.00 in order to protect buyers in this market, 42 Chapter 7/Consumers, Producers, and the Efficiency of Markets a b c d total surplus and efficiency in the market will increase